Thursday, July 16, 2009

The spirit of capitalism

Isotope crisis. Dying cancer patients in dire need of bone scans. What a great time for profit-taking.

Covidien Ltd., fresh from jacking up its prices by 50%, is set to add another 40% to its take. The Dublin-based company raked in a mere $10 billion in revenues last year.As reported:

The price increases are forcing hospitals to absorb additional unforeseen costs at a time when they are under financial strain during the economic recession.

The situation is unsustainable, as hospitals cannot meet their budgets when they are paying higher prices and doing fewer tests because crucial materials are in short supply, said Jean-Luc Urbain, president of the Canadian Society of Nuclear Medicine.

Every nickel that's taken out of a hospital operating budget to feed Covidien's insatiable desire for profit is a nickel taken away from the many other complex and vital healing tasks that a hospital is supposed to do. It's a zero-sum game, and thanks to the Harper government's well-documented incompetence, we don't get to move first.

Good time to invest, though:

Covidien Ltd. (NYSE: COV) closed yesterday at $35.96. So far the stock has hit a 52-week low of $27.27 and 52-week high of $57.00. Covidien stock has been showing support around 34.97 and resistance in the 36.79 range. Technical indicators for the stock are Bullish and S&P gives COV a positive 4 STAR (out of 5) buy rating. COV appears on the Investors Observer Momentum Plays list. For a hedged play on this stock, look at an Oct '09 35 covered call (COV JG) for a net debit in the $33.26 area. That is also the break even stock price for this trade. This covered call has a 95 day duration, provides 7.51% downside protection and a 5.23% assigned return rate for a 20.10% annualized return rate (comparison purposes only). Covidien has a current annual dividend yield of 1.80%.

And Stephen Harper wants Canada to get out of the isotope business, leaving us at the mercy of these foreign gougers? Better we should nationalize it,* ensuring supply and putting an end to gouging altogether. God help me, I'm starting to yearn for the Juche Idea.

UPDATE: Blogger Impolitical, who has been all over this story from the beginning, makes the case for re-starting the MAPLE reactor project.

___________*Good grief. AECL is already "nationalized," of course, and has a monopoly on isotope production, as reader Mike Brock points out. The Harper plan is to sell off AECL, however. Perhaps I was thinking too far into the future--in any case, mea culpa for the blooper.